If You Tax It They Will Leave

Member Group : Lincoln Institute

"If you want to go to work you can find a job."

How many places in Pennsylvania, in fact in America can make that boast? They can in Bradford County where County Commissioner Doug McLinko explains that drilling for gas in the Marcellus Shale deposit has been an economic boom for his region – this while the rest of the nation suffers through the biggest recession since the Great Depression.

One reason for the boom is that Pennsylvania has not killed off the still developing natural gas industry by enacting a severance tax that would make the activity less profitable and choke off or at least slow down the economic development which is currently taking place. But, there is growing political pressure to enact additional taxes on gas drillers.

It should be pointed out that the companies drilling in the Marcellus Shale region are already paying every tax that is levied on every other business in the state. Severance tax supporters portray the gas companies as virtual robber barons who are pillaging Penn’s Woods natural resources and paying nothing for the privilege. That is simply not true. Pennsylvania has some of the highest corporate taxes in the nation. In fact we are the only state to impose both a Corporate Net Income Tax and a Capital Stock and Franchise Tax. The oppressive nature of the commonwealth’s taxes is one reason why our economy has struggled in recent decades.

Proposed steep cuts in K-12 public education and state support for higher education have added to the pressure for enactment of a severance tax. But the education community in Pennsylvania has been living high off the hog for many years, receiving budget increases far above the rate of inflation during both good times and bad. The education establishment finally got too greedy by attempting to incorporate temporary federal stimulus money into its funding base, and now must deal with budget cuts.

The two issues should not be intermingled. No one industry in Pennsylvania should be singled out to pay for the overspending by state government in education and other areas. To over-tax gas drilling would simply put the brakes on development of the resource. The result of that would be a steep decline in the taxes they already pay, essentially negating the revenue from the severance tax. It is all rather academic, however, as Governor Tom Corbett has pledged not to raise taxes. Just last week, as the Marcellus Shale Commission began its work, Lt. Governor Jim Cawley stated flatly: "A severance tax is off the table."

But possible impact fees are on the table. The danger is that impact fees could become a Trojan horse for implementing a state tax. There is logic behind the state empowering counties and municipalities in the Marcellus Shale region to impose impact fees to mitigate local infrastructure and environmental damage. Such taxing decisions should be made locally, by county commissioners and township supervisors, with the money flowing into their coffers not into the abyss in Harrisburg.

Some at the capitol are already preparing to try and grab a share of the treasure. A spokesman for Senate President Pro Tempore Joseph Scarnati is suggesting impact fees include funding for the state’s Growing Greener initiative. When an impact fee bill begins its trip through the legislative process look for others to add their favored projects or programs to the proposed law. In an era of cuts, lawmakers will circle this bill like starving buzzards above a carcass.

If a bill gets larded up with anything other than a local option impact fee it will certainly invite a gubernatorial veto. Levying an impact fee with any portion of the proceeds going to the state would be a clear violation of the governor’s no new taxes pledge. Allowing counties and municipalities to assess fees dedicated solely for restoring infrastructure damage is not.

The problem is leadership in the state senate still ascribes to the old school thinking that Pennsylvania has a revenue problem. Tom Corbett, having come to power in the age of the Tea party, understands that we have a spending problem. That is why he has not singled out one industry for extra taxation, and proposed a budget that spends within our means. Given that the old tax and spend mentality got us into the current fiscal mess, the time has come to try Corbett’s different approach.

(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal. His e-mail address is [email protected])

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